Category Archives: 14. Social Effects of the Boom

“Living in cramped spaces is everyday life for many families. Because of the high cost of housing, many have to make do with whatever they can afford. In Vancouver, city staff estimated that more than 8,000 families with at least one parent and a child were living in a studio or a one-bedroom apartment in 2011.

Ryan Chahl, a 29-year-old entrepreneur, is thinking about settling down. He wants to provide adequate housing for his future family. “I’m kind of looking for a home that could potentially support a family,” Chahl told the Georgia Straight in a phone interview. That means a three-bedroom house “with some room to grow”. “I’m trying to plan for the future and think ahead,” Chahl said.

For now, his plan doesn’t include selling the Port Moody condo he bought four years ago. “It’s an asset that I can grow equity in,” he said about the two-bedroom property where he lives on his own, and which he intends to rent out eventually. He used to live with his parents before he purchased his apartment with a five-percent down payment.

Chahl’s challenge is how to secure a new mortgage. Aimal Pamir, who was his mortgage broker for his condo purchase, has advised him that because he is self-employed, it’s not going to be easy. According to the Real Estate Board of Greater Vancouver, the federal Office of the Superintendent of Financial Institutions requires from individuals working for themselves a minimum down payment of 35 percent of the purchase price to qualify for a loan.

In 2016, Chahl set up his own consulting and project-management firm. Chahl related that his business is doing well, giving him the confidence to approach a major bank for a mortgage. “It’s kind of been the vehicle for me to start making those heavy savings that are required to be able to buy a home in Vancouver or near Vancouver, at least,” he said. Getting the bank to approve a mortgage will likely take a bit of time. Like the more than 400,000 self-employed people in B.C., Chahl has to prove that his business is viable. According to him, banks typically require three years’ proof of income. If he wants to make a purchase in six months to a year, he said that he may have to produce a 50-percent down payment.

Chahl holds a business-administration degree from SFU. For him, the housing market isn’t just a game in which he wants to make a quick buck. “It’s something that I’m investing in, going in long-term with the kind of goal of seeing those assets appreciate long-term, not kind of flip them in a year or two,” he said. Chahl expects home prices to gradually decline, which is generally in line with the latest projections by the Canadian Real Estate Association (CREA). According to the CREA forecast issued on March 15, home prices in B.C. will shrink by more than five percent in 2017.

Chahl is not worried that the property market has risen so fast that it can only head for a crash. In September last year, Swiss bank UBS reported that Vancouver is number one on its global list of cities with the highest bubble risk. “Over the next year, maybe two, you’re going to see a decrease in prices, but I can’t imagine…a bubble bursting where over six months you see a decrease of 30 or 40 percent,” he said.

As in his first purchase, his realtor and older brother, Adam Chahl, is around to help him acquire a second property. “Adam, being who he is, I have absolutely no issues trusting him,” he said. Chahl said he’s happy with the way things are going for him. His long-time girlfriend lives in a neighbouring city 10 minutes away from his condo. There are lots of trails nearby where they can hike and walk her three dogs. Chahl can see the two of them growing a family together in the future: “That’s the plan.”

For 10 years or more, the vast majority of Vancouver RE sales have been at least partly based on the belief that there would be ongoing outsized price gains.
The buyer above is convincing himself that he’s an investor, and that he’s purchasing for his own future sensible use, but actually he’s speculating.
He’s assuming there may be modest price decreases in the short term and then.. off to the races again. Why else buy two properties?
It’s interesting to hear him state the possible risks but then dismiss them.
The family RE professional is another bubble feature.
Buying even vaguely near the top of a bubble can take thirty years or more from which to recover, in real terms.
Perhaps this guy will be lucky and fortuitously-timed price drops will cause him to reconsider.
Timing can be… tricky. Luck helps.

PS: Yeah, we know the standard response: “But, he just needs a place for him and his family to live!” — That’s the argument that has fueled this bubble all this while: Locals overextending themselves into mortgages which in rational times would be seen as preposterously & laughably oversized, pushing prices higher and higher in doing so, completely unsupported by any real economic fundamentals, all the while convincing themselves they are prudent citizens motivated by wholesome values. If and when you take the expected unrealistic price gains out of this equation, there will be fresh air under this market.

“My book is a kind of love letter to the city as it was and before it got overtaken by money. Money, for me, may not immediately kill people in the way terrorism does, but it does certainly change the fabric of daily life in much deeper and more insidious ways. The terrorist may be defeated in 50 or 20 or 10 years, but money is going to be much harder to defeat.”
– Luc Sante, cultural historian, as quoted by Sukhdev Sandhu in The Guardian, 2 Jan 2016

“It doesn’t just effect the price of real estate. It effects the way people think; it causes a kind of ‘Gentrification of the Mind’.”
– Christian Viveros-Fauné, art critic for The Village Voice, paraphrased from a ‘The Conversation’ podcast

Metro Vancouver leaders are getting ready to welcome the largest influx of refugees in the province’s history, but their optimism at helping those fleeing war-torn Syria is being met with concern about the availability of resources in areas such as housing and mental health.
– Globe and Mail, 11 Nov 2015

If you’ve got a spare room or an empty basement suite, the Immigrant Services Society of B.C. wants to hear from you.
With as many as 3,000 Syrian refugees poised to arrive in B.C. before the end of the year, the organization is “bracing” for the “largest refugee influx in the history of the province,” said Chris Friesen, director of settlement services for ISSBC. Although settling the refugees will be challenging, Friesen called it a “bold, humanitarian measure” by the new federal government.
“Securing permanent housing (for the refugees) will be impossible without your help,” Friesen said in his call to the public for action. “We need to turn over every rock in this province to find the housing that will be necessary.”
A sign-up website is now live and has already collected 61 housing offers, 90 volunteer offers and three employment leads, but many, many more are needed, Friesen said.
“It’s an indication of the overwhelming support British Columbians want to provide,” Friesen said.
Volunteers are needed to help the refugees settle in, including things such as taking families to the library or speaking English with them for as little as a few hours a week. They’re particularly looking for trauma counsellors to volunteer their time, because about one-third of the refugees are expected to have post-traumatic stress disorder.
The Syrian refugees are expected to settle mostly in Surrey, Coquitlam, Burnaby, New Westminster and Vancouver, although some Syrian refugees who have already arrived are living in Delta and Richmond, Friesen said.
– Vancouver Sun, 11 Nov 2015

Here’s part of an exchange between broadcast journalist Chris Hayes and comedian-podcaster Mark Maron –

Maron: Why Chicago?

Hayes: It was so much cheaper than New York, that was the big reason..

M: I know the cities that are kind of authentic in their own thing… … an organic nature to it… and [Chicago] is one of them…

H: It’s its own thing and it’s because the cost of living relative to other cultural Meccas that people will go to is so low, what you get in Chicago is all these people in their twenties.. paying $250 in rent, $350 in rent, and maybe waiting a table or two but then like writing their show, or doing comedy, or painting… there was a lot of space for people to pursue this kind of work… or to do really amazing social justice work, and all of that was facilitated by much cheaper living…

M: Like New York in the Seventies…

H: Exactly…

M: There was a time when a lot of cities had that but it’s almost like it doesn’t exist anymore… and I think that’s diminished the arts communities in general…

H: Absolutely…

M: If you can’t have bunch of poor creative people…

H: That is what facilitates.. /.. when we think of places that were like that, like the lower east side in the 80’s, they were that because it was cheap..

“The most expensive housing market in North America is not where you’d think. It’s not New York City or Orange County, California, but Vancouver, British Columbia. Now, Vancouver is a beautiful city—a thriving deep-water port, a popular site for TV and movie shoots. By all accounts, it is a wonderful place to live. But nothing about its economy explains why—in a city where the median income is only around seventy grand—single-family houses now sell for close to a million dollars apiece and ordinary condos go for five or six hundred thousand dollars. “If you look at per-capita incomes, we look like Reno or Nashville,” Andy Yan, an urban planner at the Vancouver-based firm Bing Thom Architects, told me. “But our housing prices easily compete with San Francisco’s.”

When price-to-income or price-to-rent ratios get out of whack, it’s often a sign of a housing bubble. But the story in Vancouver is more interesting. Almost by chance, the city has found itself at the heart of one of the biggest trends of the past two decades—the rise of a truly global market in real estate.
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A recent report by Sotheby’s International Realty Canada examined more than twelve hundred luxury-home sales in Vancouver in the first half of 2013 and found that foreign buyers accounted for nearly half of sales.
—

Vancouver isn’t an obvious superstar. It’s not home to a major industry—as New York and London are to finance, or San Francisco to tech—and it doesn’t have the cultural cachet of Paris or Milan. Instead, Vancouver’s appeal consists of comfort and security, making it what Andy Yan calls a “hedge city.” “What hedge cities offer is social and political stability, and, in the case of Vancouver, it also offers long-term protection against climate change,” he said. “There are now rich people around the world who are looking for places where they can park some of their cash and feel safe about it.”
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The globalization of real estate upends some of our basic assumptions about housing prices. We expect them to reflect local fundamentals—above all, how much people earn. In a truly global market, that may not be the case. If there are enough rich people in China who want property in Vancouver, prices can float out of reach of the people who actually live and work there. So just because prices look out of whack doesn’t necessarily mean there’s a bubble. Instead, wealthy foreigners are rationally overpaying, in order to protect themselves against risk at home. And the possibility of losing a little money if prices subside won’t deter them. Yan says, “If the choice is between losing ten to twenty per cent in Vancouver versus potentially losing a hundred per cent in Beijing or Tehran, then people are still going to be buying in Vancouver.”

The challenge for Vancouver and cities like it is that foreign investment isn’t an unalloyed good. It’s great for existing homeowners, who see the value of their homes rise, and for the city’s tax revenues. But it also makes owning a home impossible for much of the city’s population. And the tendency of foreign buyers not to inhabit investment properties raises the spectre of what Yan has called “zombie neighborhoods.” A recent study he did found that a quarter of the condos in a luxury neighborhood called Coal Harbour were vacant on census day.

One option would be to severely restrict foreign ownership, but that’s politically difficult, and not great for a city’s economy. It might make more sense if the Vancouvers of the world simply charged foreign buyers a premium for the privilege of owning there. “We’re one of the places where people seem to want to park their cash, and there aren’t that many of those places,” Yan says. “So let’s raise the parking fees.” As for the rest of us, we’d better get used to being tenants.

– Leandro Erlich’s Dalston House is at 1-7 Ashwin Street, London E8 3DL until 4 August as part of Beyond Barbican.
See here for video from The Guardian 26 Jun 2013: “A Victorian terrace has popped up in east London that lets you swing from its ledges, run up its walls and generally defy gravity. Architecture critic Oliver Wainwright hangs loose at Dalston House, the novelty installation by Argentinian artist Leandro Erlich.”